Nokia Smartphone Sales Skyrocket as Losses Fall

In a preliminary financial report for the second quarter, Nokia reports that it expects to lose $364 million on revenues of $7.5 billion. But the news from the firm’s devices and services business is mixed: Nokia sold a record 7.4 million Windows Phone-based Lumia smartphones in the quarter and trimmed its operating losses significantly. But it still sold far fewer smartphones overall than it did in the year-ago quarter.

Most of Nokia’s revenues actually come from Nokia Siemens Networks, the network-equipment company that Nokia assumed full control of during the quarter. That division posted an operating profit of $10.5 million.

“We’re pleased to report an underlying operating profit for the fourth consecutive quarter on a group level,” Nokia CEO Stephen Elop said in a prepared statement. “We benefited from another strong performance at Nokia Siemens Networks, which continued to deliver well against its focused strategy. With our recent announcement to purchase Siemens's 50 percent stake in Nokia Siemens Networks, we believe we will create value for Nokia shareholders and look forward to strengthening Nokia Siemens Networks as a more independent entity.”

On the Windows Phone front, Lumia sales are racing upwards, and Nokia almost doubled its Q2 2012 Lumia sales of 4 million units in the most recent quarter. But the issue is that Lumias aren’t selling as well as the firm’s previous smartphone platforms. In Q2 2012, Nokia sold 10.2 million “smart devices” overall, including both Symbian and Windows Phone handsets. With Symbian now out of the picture, the Lumia line-up has big shoes to fill, and it hasn’t yet risen to that challenge.

That said, Nokia and Windows Phone have at least ousted BlackBerry as the third most frequently used smartphone platform. With RIM/BlackBerry selling just 6.8 million smartphones overall in the most recent quarter, most of them of previous-generation devices, Nokia Lumia by itself is now out-selling all of BlackBerry. And virtually all of Nokia’s Lumia sales are of new, current-generation devices.

“We are very proud of the recent creations by our Lumia team, from the Lumia 520—our most affordable Windows Phone 8 product, which has enjoyed a strong start—to the Lumia 1020, our star imaging product, which we unveiled to the world last week,” the Nokia interim report notes. “Overall, Lumia volumes grew to 7.4 million in the second quarter, the highest for any quarter so far and showing increasing momentum for the ecosystem. During the third quarter, we expect that our new Lumia products will drive a significant part of our Smart Devices revenue.”

Looking forward, Nokia does expect unit sales of Lumia handsets to climb again in the current quarter, but it expects that the financial results for that business unit will remain “approximately negative 2 percent.” The firm is preparing for the “ramp-up” of recently announced high-end Lumia smartphone sales as well as “new Mobile Phones devices.” Nokia previously promised it would be launching new devices before the end of the year.

Discuss this Article 20

I'm going to refer back to my previous statement and state something that seems obvious (to me, at least):

Windows Phone OS: A better iPod than iPod (?)

Nokia could attack this market with low-cost versions like the 52x, and Microsoft should get behind that strategy. Even as cheap as the 52x is with the phone features, what happens when you rip out the phone guts and turn it into a WiFi-only device? The price drops, and now you have a very compelling non-phone mobile device. They need to do this NOW, not when Windows 9/Phone 9 comes out!

If you buy the phone outright, Why do you need to sign a contract? Just Leave the SIM out, or turn cell off, and you have a data-plan-less 1020. I have several smart-could-be-phones that work fine on just WiFi.

These numbers give a perspective on how huge a bet Nokia took by choosing Windows Phone. And show signs that they are going to pull it off. It's always impressive to see big companies like this being able to take such big steps, even if it seemed a little late when it was announced. It does remind me of the time when Microsoft announced a halt in their product releases because they needed time to become an Internet company. Sometime after the Release of Windows 95, which came first with the Microsoft Network but no Internet browser. Am I mixed up, Paul?

(Re)Acquiring the networks business in its entirety signals that the company is preparing to shift its focus away from the consumer segment and the commodized phone business, towards services (HERE) and network gear and the pertinent B2B services. The firm sold 60 million phones in total but made no money with them -- again. It is time to start exiting this business. Based on early analyst comments in Europe, investors seem to agree this is indeed what is now happening and the decision has been reached in the company to not trust the future any more on WP. If the opposite were the case, Nokia would not have acquired the networks business, of course, but rather have sold it. But the smartphone strategy has run its course -- and has failed. The low volume and low average selling price were the final nails in the WP endeavour's coffin, it appears.

Nothing can be read into Nokia's acquisition of the other 50% of NSN. I'm not saying it necessarily isn't a part of a new strategy, but the circumstances were such that purchasing the remaining stake was the only (sane) corporate option. The JV had expired, and Siemens wanted out. There were no buyers for the business at present, even though both Nokia and Siemens had been looking to sell it as a going concern for some time now. Since it is still profitable, the only sensible thing Nokia could have done was to buy the other half. Every other option available represented less value for Nokia's shareholders.

Nokia's feature phone business, however, is indeed a "dead" business, despite the fact that it dwarfs its smartphone business today. ALL of those tens of millions of Nokia feature phone users will eventually move to smartphones. Nokia certainly won't be able to grab all of them for WP. The good news is that it only needs a fraction of them to turn WP into a viable smartphone platform.

"Skyrocket" seems a bit of a stretch, since that's certainly not what Nokia's share price did this morning. The upside, however, is that, forget the "battle" for the third ecosystem (if there's going to be one), since WP appears to have already won the war.

The only relevant measure in this rivalry is WP8 unit sales versus BB10 unit sales. Although it is not clear how many of this quarter's Lumias were WP8, it's certain that a vast majority were. That means WP 8's user base is growing at around three times the rate of BB10. Just to get "back in the game," BB10 sales would have to quadruple in the next quarter. Since even BB die hards aren't predicting that, it appears to be game, set, and match to MS.

I stand by my argument that two things need to happen... at least in the US/North America market.

1. Nokia needs to stop with the carrier exclusives. There may be relationship-building going on there, but it's not working to Nokia's advantage (yet), so they need to be more aggressive.

2. The US market needs to see the low-end models show up everywhere. They CAN make a difference when customers have bad experience with cheap Android phones and then see how smooth Windows Phone is by comparison. After that, people will be more inclined to look at and possibly pony up for the bigger models.

Ideally, I'd say by year end... get the 500-600-700 series devices on ALL US carriers (at least as many as possible) and push them hard. Keep the 900 and 1000 variants as exclusives on the high-end (for now) with plans of doing the S4 cross-carrier approach by end of 2014.

They're still struggling in the US though--only 500,000... which is 100,000 less than last quarter (which wasn't all that impressive).

I think the problem is that Apple is much more entrenched in the US than in other regions (possibly because it's an American company). In almost all other regions, the iPhone is losing market share to Windows Phone... but in the US, not so much.

I'm not sure what the solution is. Maybe they just need time... or more phones at more price points. The reality is that most of the Nokia phones on US carriers are high-end devices (although still relatively cheap). They probably need to bring more mid-low range devices to more carriers & to retailers (like Walmart, Target, etc.).

It's actually 100,000 more than last quarter. Only 400,000 Lumias were sold in the US last quarter. The 600,000 number was probably all WP sold in the US in Q1; that is, including other OEMs (HTC does much better with its WP in the US than it does in the rest of the world).

It's unfortunate that Windows Phone 8.1 is delayed until next year. It's going to cause, I think, a lull in the ramp-up of Windows Phone sales.

But I think if Nokia plays their cards right with the next generation of devices, Releasing new phones in conjunction with the WP8.1 rollout, we'll see this trajectory pick up speed.

What they really need to do, though, is ensure there's a robust 3rd party accessories market. I've known a couple of people that loved WP8/Lumia, but ended up going back to iPhone or Android because the WP8/Lumia ecosystem didn't have readily available accessories for things like heart monitors, exercise, etc... think "Nike+" (which has said it has no interest in working on WP8 apps or devices).

Both MS and Nokia need to work hard to get these third parties involved, and fix these holes in the ecosystem, and top giving people excuses to reject or leave Windows Phone/Nokia.

"In a preliminary financial report for the second quarter, Nokia reports that it expects to lose $364 million on revenues of $7.5 billion. But the news from the firm’s devices and services business is mixed: Nokia sold a record 7.4 million Windows Phone-based Lumia smartphones in the quarter and trimmed its operating losses significantly. But it still sold far fewer smartphones overall than it did in the year-ago quarter."

They lose money on every sale, but make it up in volume? Sales are down compared to a year ago. But you say that sales "Skyrocket"? I'm not parsing how anything in this is a success. "Sucks less than Blackberry" is about all I could say for it.

I've continually argued that Nokia hasn't had a choice about carrier-exclusive deals but I think it is abundantly clear that they need to move away from this practice as soon as possible. They need to simplify their lineup and go for cross-carrier launches. While it is great that Nokia will have rolled out ten WP8 devices across six series, there are serious drawbacks to offering this kind of portfolio.

First, It forces the entire company from marketing and sales to manufacturing and engineering to divide up limited resources. You now need to create separate marketing initiatives for each device, meaning you’re now putting time and effort into your fifth and sixth best ideas instead of focusing everything behind your best. Even if the campaign, the buzz and the reviews are great, you never have a device that can reach every consumer. Nokia might have hoped that they could string together a few base hits with the 920, 925 and 928 but there was never any realistic hope that they could hit a home run. Retooling the manufacturing line also means you reduce your opportunity to improve the process. Time spent tinkering on carrier-specific variants could be better spent working towards solving a smaller set of core problems or developing innovations for the next line of products.

A second consequence of having ten different devices is that few of them will see any kind of accessory market develop around them. This is a critical component. Accessories are not merely conveniences for consumers or a high margin revenue source for phone manufacturers- they provide direct validation of a device in the mind of consumers. When consumers are in a phone store or shopping in the mall and they see a large selection of accessories for a device they are getting a clear message: this device is popular and worth consideration. The size and health of a surrounding accessories market is a reflection of the health of that device. This is almost a direct corollary to the way that app availability signals health for a platform. Think about the message consumers receive every time they see those logos for the App Store and the Play Store- whether it is on a billboard, a subway sign, a website, an end cap, a promotional tri-fold or on the front door of a business.

A third, perhaps lesser consequence is confusion on the part of consumers. We’re getting savvier, and we have access to more information than ever but trying to choose from three or four different series, let alone figure out the differences among variants is too much work.

I really hope that the 1020 (or whatever incremental updates they’ll roll out in the fall) will mark the end of carrier exclusivity. I would love to see a global flagship launch in Q1 2014 to coincide with WP8.1, followed by global mid-tier and entry-level launches in Q2. I’d even be willing to concede a fourth device to cover the upper-mid-tier.